5.  The first applicant was born in 1953 and lives in Petrozavodsk, in the Republic of Kareliya. The second applicant was born in 1956 and lives in Mezen, in the Arkhangelsk Region.
6.  The first applicant was an employee of the municipal unitary enterprise “Avtokolonna 1126” (Auto Transport Column 1126) in Petrozavodsk, the Republic of Kareliya.
7.  “Avtokolonna 1126” was set up by a decision of the administration of the Town of Petrozavodsk (“the town administration”). It provided public transport services in the town on a commercial basis. The company had “the right of economic control” (право хозяйственного ведения) over the assets allocated to it by the town administration in order to carry out its statutory activities. Legal provisions on the status of municipal unitary enterprises and the right of economic control are summarised in paragraphs 55‑75 below.
8.  At the request of the company, on 29 December 2001 the town administration withdrew unspecified assets of an aggregate value in excess of 25,000,000 Russian roubles (RUB) from the company’s economic control and immediately allocated them to the same company for temporary use free of charge under a loan agreement.
9.  Under several agreements between the company and the town administration, including one dated 21 January 2002, the company undertook to provide transport services to certain sections of the population free of charge, and the town administration was to reimburse it for the expenses incurred out of the budget allocated for that purpose by the Ministry of Finance of the Republic of Kareliya or the federal budget. According to a letter from the Committee of Housing and Communal Services of Petrozavodsk dated 19 March 2003, at some point the respective budgets accumulated a considerable debt towards the company owing to a shortage of funds. Consequently, the company was unable to pay its employees in due time. The town administration requested the legislative body of the Republic of Kareliya to consider the allocation of additional funds to cover the company’s debt in 2004, but to no avail.
10.  On an unspecified date the administration ordered the restructuring of the company in the form of a spin-off and transferred the assets mentioned in paragraph 8 above to the newly created municipal unitary enterprise “Avtokolonna 1126 Plus”. The debt accumulated in respect of the unpaid salaries was not transferred and remained with the applicant’s employer.
11.  On 6 July 2003 the Commercial Court of the Republic of Kareliya declared the respondent company insolvent, and a liquidation procedure commenced.
12.  The applicant sued her employer for salary arrears.
13.  On 20 June 2003 the Petrozavodsk Town Court awarded her RUB 5,421.89 in salary arrears, compensation for non-pecuniary damage and court expenses. The judgment was not appealed against and became final ten days later. On 4 July 2003 the bailiffs’ service received the writ of execution in respect of the award.
14.  On 22 June 2003 the applicant was dismissed from the company in view of its upcoming liquidation (see paragraph 10 above).
15.  By a final judgment of 25 November 2003 the Petrozavodsk Town Court granted her new action and ordered the respondent company to pay her RUB 19,445.53 in salary arrears for a different period of time, severance pay and compensation for non-pecuniary damage. The applicant obtained a writ of execution in respect of the award.
16.  By a final judgment of 16 April 2004 the same court, in separate proceedings, awarded the applicant RUB 4904.95 in compensation for loss of salary, based on the average wage, and compensation for non‑enforcement of the above-mentioned two judgments as well as non‑pecuniary damage. On 17 May 2005 the writ of execution was forwarded to the bailiffs’ service.
17.  At some point the bailiffs discontinued the enforcement proceedings in respect of at least two judgments (22 June 2003 and 16 April 2004) and forwarded the writs to the liquidator.
18.  By separate judgments of 21 and 24 June 2004 and 12 and 13 August 2004 the Commercial Court of the Republic of Kareliya ordered the Federal Treasury and the Republican Treasury to reimburse the company the cost of the transport services it had provided free of charge under the respective agreements (see paragraph 9 above) and rejected a similar claim against the town administration.
19.  At some point the liquidator received the writ of execution in respect of the judgment of 25 November 2003.
20.  According to the liquidator’s notes on the respective writs of execution, at some point the applicant received RUB 4,358.98 of the amount awarded on 20 June 2003, RUB 8,782.78 of the amount awarded by the judgment of 25 November 2003 and RUB 4,604.95 of the award made on 16 April 2004. The remainder of the judgment debts has not been paid to the applicant.
21.  On 4 October 2006 the Commercial Court of the Republic of Kareliya discontinued the insolvency proceedings and ordered the respondent company’s liquidation.               The creditors’ claims, which had not been satisfied during the liquidation procedure, including the remainder of the applicant’s claims, were considered as settled. On 15 October 2006 the liquidation was recorded in the Register of Legal Entities, and the company ceased to exist.
22.  In 2005 the applicant lodged an action against the town administration, claiming that it was liable to repay her the remaining judgment debt plus compensation for the delayed enforcement of the court orders and non-pecuniary damage. She argued that the insolvency of the debtor company had been caused by the actions of the town administration. First, it had failed to reimburse the expenses the company had incurred for providing transport services, as stipulated by the respective agreements (see paragraph 9 above). Second, the company’s inability to meet the creditors’ claims had been caused by the transfer of the assets to a different company carrying out the same functions. As a result, the debtor company had become unable to continue to carry out its activities as defined in its articles of association.
23.  On 21 January 2005 the Petrozavodsk Town Court dismissed the action. The court established that the federal and republican authorities owed the applicant’s former employer RUB 1,883,370 for services provided at a reduced price. However, with reference to the Commercial Court’s findings (see paragraph 18 above) the court concluded that the debt had been accumulated as a result of the federal and republican authorities’ inaction and therefore it could not be attributed to the town administration. As regards the transfer of the assets, the court found as follows:
“The restructuring («реорганизация») of the municipal unitary enterprise ‘Avtokolonna 1126’ in the form of a spin-off and the creation of a separate unitary enterprise, ‘Avtokolonna 1126 Plus’, was within the property owner’s rights. [The applicant] failed to prove the existence of a causal link between the restructuring ... and the enterprise’s insolvency”.
24.  The court further observed that, in any event, the applicant’s claim was premature, since the insolvency proceedings had been underway at the material time. On 22 March 2005 the Supreme Court of the Kareliya Republic upheld the judgment on appeal.
25.  Once the debtor enterprise was liquidated, the applicant lodged a similar claim with the Justice of the Peace of the 10th Court Circuit of Petrozavodsk. In addition to her earlier submissions (see paragraph 22 above) she reiterated that the debtor company had reported to the owner and the latter had been fully aware of its financial difficulties. However, no measures had been taken to remedy the situation.
26.  On 21 May 2007 the Justice of the Peace rejected her claims, largely referring to the findings of the Petrozavodsk Town Court of 21 January 2005 (see paragraph 23 above). She found that even though the liquidation proceedings had been terminated, the applicant had failed to adduce any additional evidence to demonstrate that the owner had caused the company’s insolvency. The Justice of the Peace noted that the company had been a separate legal entity liable for its debts with all its assets, and therefore rejected the applicant’s argument about the town administration’s inaction as irrelevant.
27.  On 12 September 2007 the Petrozavodsk Town Court endorsed those findings as regards both the failure of the authorities to compensate the cost of the transport services and the restructuring of the company. The court noted, in addition, that the withdrawal of the assets on 29 December 2001 had taken place pursuant to the company’s own request and that, moreover, those assets had been returned to it for free temporary use, which had permitted it to continue its activities. The court further found the applicant’s arguments about the authorities’ inaction ill-founded and emphasised that the applicant had failed to submit evidence in support of her claims.
28.  The applicant was an employee of the municipal unitary enterprise “Zhilishchno-Kommunalnoye Khozyaystvo of Mezen” (“Housing and Communal Service of the Town of Mezen”, hereafter “the company”) in the Arkhangelsk Region. 1.  Available information on the debtor company and the beginning of the liquidation procedure
(a)  The company’s articles of association and activities
29.  The company was set up by decision of the administration of the Mezen District. It had the right of economic control over the assets allocated to it by the district in order to meet its statutory objectives. In accordance with the company’s articles of association, it was a commercial organisation performing the following activities, among others: renovation and maintenance of the municipal housing stock; heating and water supply; maintenance of the sewage systems in Mezen; cartage and passenger transport; funeral services; maintenance of municipal boiler plants, artesian wells and related infrastructure, as well as heating supply systems; production of fast-moving consumer goods; and disposal of dry waste and household waste,
30.  According to its articles, the assets of the company consisted of the profit generated by its activities, capital investments, and grants from the federal, regional and local budgets and other sources. The company’s financial resources were made up of profits, amortisation charges, loans and other revenues, as well as “grants from the local budget to cover any losses incurred through the provision of housing and communal services”.
31.  The company planned its activities and development itself. It proposed prices and the tariffs for its products and services in accordance with the domestic legislation and submitted them to the district administration for approval. The plans were based on contracts with consumers, including State bodies and suppliers, “concluded on a commercial basis”.
(b)  Employees’ salaries
32.  The basic salaries of the employees of the housing and communal sector for 2005-07 were set by the Sectoral Tariff Agreement for the Housing and Communal Sector of the Russian Federation (Отраслевое тарифное соглашение по организациям жилищно-коммунального хозяйства Российской Федерации) concluded between the employees of the “essential public services sector” represented by the trade union, and the employers, represented by the Communal Enterprises Union. The agreement applied to the municipal authorities that empowered the parties to make such an agreement, as well as to all entities operating in the housing and communal sector, unless they explicitly refused to apply it. No such refusal was made by the applicant’s employer.
(c)  Available information on tariffs for heating supply
33.  The district administration was responsible for setting the tariffs of the company’s services and was also a major consumer of its services. The tariffs in place until 2005 were based on 5 per cent profitability. According to the submissions of the director of the company which employed the applicant in the subsidiary liability proceedings brought by the applicant (see paragraph 48 below), as a result of the application of those tariffs the enterprise had become unprofitable; the loss in profits amounted to RUB 300,000 and was not reimbursed by the administration. The administration failed to pay RUB 2,500,000 for the company’s services. According to its director, the company was put in a difficult financial situation as a result of the actions of the owner.
(d)  Restructuring of the company
34.  On 23 December 2005 the Head of the Mezen district administration ordered the restructuring of the company in the form of a spin-off, creating a new municipal unitary enterprise “MUP ‘Mezenskiye Teplovyye Seti’ (Mezen Heating Supply Systems) of the Mezenskiy District” (hereafter, “MUP ‘MTS’”).
35.  On the spin-off balance sheet approved by the Head of the Mezen district administration on 20 April 2006, the unpaid salary debt was not transferred to the newly created company.
36.  On 24 May 2006 the Head of the Mezen district administration ordered the withdrawal of coal and all other assets, except for the company’s authorized capital, from the company’s economic control and their allocation to MUP “MTS”. The director of the company which employed the applicant became director of MUP “MTS”.
37.  On 13 July 2006 the Head of the Mezen district administration ordered the applicant’s employer’s liquidation.
38.  On 29 May 2007 the Commercial Court of the Arkhangelsk Region declared the respondent company insolvent, and the liquidation procedure was set in motion.
39.  The applicant sued his employer for salary arrears, claiming that his salary rate was below that provided for in the respective Sectoral Tariff Agreement (see paragraph 32 above). The liquidator accepted the claims. On 19 June 2007 the Justice of the Peace of the Court Circuit of the Mezen District of the Arkhangelsk Region awarded the applicant RUB 80,892.63 in salary arrears against his employer.
40.  The judgment was not appealed against and became final.
41.  On 16 July 2007 the bailiffs’ service initiated the enforcement proceedings in respect of the judgment. On 19 July 2007 the bailiffs terminated the enforcement proceedings and forwarded the writs of execution to the liquidator.
42.  At some point before 1 February 2009 (date of the liquidator’s report, see paragraph 45 below) the applicant’s claims were included in the second priority line of the register of creditors’ claims.
(b)  Application to the Arkhangelsk Commercial Court
43.  According to the Government, on 1 October 2007 the applicant petitioned the Commercial Court of Arkhangelsk with a request to order the liquidator to enforce the judgment in his favour.
44.  On 4 October 2007 the court returned the petition unexamined, referring to section 60 of the Insolvency Act (see paragraph 120 below). The parties have not submitted a copy of any document produced by the court in that respect, or a copy of the applicant’s petition.
(c)  The company’s liquidation
45.  On 1 February 2009 the liquidator produced a report stating, inter alia, that the assets of the debtor company had not been found and the receivables had not been established, “for lack of financial records”.
46.  On 24 February 2009 the Commercial Court of Arkhangelsk terminated the insolvency proceedings and ordered the respondent company’s liquidation. The creditors’ claims which had not been satisfied during the liquidation procedure due to the debtor’s shortage of funds, including the applicant’s claims, were considered as settled. The court further ordered that the enforcement proceedings in respect of that debt be terminated.
47.  The applicant lodged a court action against various respondents claiming, inter alia, that the town administration was liable to repay him the unpaid judgment debt, as well as compensation for non-pecuniary and pecuniary damage resulting from the non-enforcement. He argued that the insolvency of the debtor company had been caused by the actions of the district administration.
48.  On 16 September 2009 the Mezenskiy District Court of the Arkhangelsk Region heard the parties, including the applicant, the district administration representative and the head of the liquidated company who was, at the time of the events, employed as the director of MUP “MTS” (see paragraph 34 above) and granted the applicant’s claims in part. The court reiterated that the debtor company had been set up by the district administration, which, as its owner, had been entitled to decide on its restructuring and liquidation under Article 295 § 1 of the Civil Code. The owner could not be held liable for the insolvent company’s debts unless the insolvency had been caused by the owner’s actions. The court established that as a result of the administration’s tariff-setting policy (see paragraph 33 above) the company had been put in a pre-insolvency situation. Furthermore, the court emphasized that the district administration had withdrawn all assets from the company except for its authorized capital, which resulted in the company’s inability to continue its activity in accordance with the goals and objectives assigned to it. With reference to the Court’s case-law (Shlepkin v. Russia, no. 3046/03, 1 February 2007; Grigoryev and Kakaurova v. Russia, no. 13820/04, 12 April 2007; and Aleksandrova v. Russia, no. 28965/02, 6 December 2007) the District Court found that the administration had subsidiary liability for the insolvent company’s debts, ordered that the judgment debt be recovered from the district administration at the expense of the district treasury and rejected the remainder of the applicant’s claims. In particular, the court found that the newly created company was not liable for the debts of the applicant’s employer since they had not been transferred to it in the spin-off procedure.
49.  On 17 December 2009 the Arkhangelsk Regional Court quashed the judgment on appeal and remitted the case for a fresh examination. The regional court found that it was for the applicant to demonstrate that the insolvency had actually been caused by the owner’s actions. However, he had failed to do so. Turning to the tariff-setting issue (see paragraph 33 above), the regional court noted that under the domestic law the owner was not obliged to finance the company directly. The regional court further considered that the assets had not actually been withdrawn from the company which employed the applicant, but that the company itself had transferred them to the newly created company on the spin-off balance sheet after the restructuring. There was nothing in the case to suggest that the lawfulness of the transfer of the assets had at any point been challenged in court. Furthermore, Russian employment law had not contained any provisions on the subsidiary liability of owners for the debts of municipal unitary enterprises. On the other hand, the first-instance court had failed to examine the issue of MUP “MTS”‘s liability for the debts of the restructured company.
50.  On 19 February 2010 the Mezenskiy District Court rejected the applicant’s claims. The court found that, as a result of the withdrawal of all assets from MUP “MTS”, the latter had become unable to continue its activities, which indeed constituted a reason for its insolvency. However, the court went on to find that
“... the insolvency occurred through no fault of the owner, since they [sic] had been bound by the federal law. Therefore, one of the criteria for the application of subsidiary liability, namely, fault on the part of the owner, is missing.”
51.  In so far as the applicant’s claims for compensation for delayed enforcement were concerned, the court noted, in addition, that he had failed to raise that issue before the main debtor, that is, the employer company, and was therefore prevented from making such claims in the subsidiary liability proceedings. Lastly, the claims lodged against the newly created company could not be granted since the debt in respect of the salary arrears had not been transferred to it.
52.  The applicant appealed, arguing, inter alia, that the liquidator had not been heard by the first-instance court and the documents on the debtor company’s remaining assets had not been available to him.
53.  By a final judgment of 6 May 2010 the Arkhangelsk Regional Court upheld the lower court’s findings of 19 February 2010 on appeal. The regional court rejected the applicant’s argument regarding the unavailability of the company’s documents as irrelevant, having noted that the claimant had to demonstrate that the insolvency had been caused by the owner’s actions and not by the company’s own management “and, in any event, not vice versa”. The court endorsed the remainder of the lower court’s findings.